Is Your Business Drowning in Overdue Receivables?

Sounds like you could use a good “Cash Collection System”

Effective debt collection policy requires a system that should not be overridden other than by exceptional circumstances – discipline is the key.  Not allowing late payments will avoid disrupting your cash flow and will also avoid harming your company’s chances of success.

To keep debtors flowing smoothly, many businesses use a series of letters and telephone calls, all designed to ensure customers pay on time, every time. These communications start out friendly enough but progressively they become more serious and insistent as payments become overdue.  How you adapt the suggested collections system is up to you – for example, you may be more comfortable telephoning customers, rather than sending letters.  The important thing is to have a system – please use the steps outlined below to create yours.

Before you start doing business with anyone, remember the following:

1. Invoices are payable immediately It is a common fallacy that invoices are payable after 30 days or “at the end of the month following receipt”. Ensure that your terms of business clearly state that invoices are payable immediately and, as a courtesy, you may wish to accept 30 days credit but that is not documented in your terms of business.
2. Check the credit status of your potential customer – Use a credit checking agency such as Experian to ensure that your potential customer is not already showing signs of becoming a bad debt for your business.  You might also review the company’s rating on the Better Business Bureau’s website.
3. Determine the credit limits so that you do not over-expose your business to a potentially large bad debt and determine what level of credit you are willing to give this potential customer — document this into your sales ledger.  You may wish to increase this as your customer proves they are paying your invoices promptly.
4. Ensure your Terms of Business have been signed by your customer and a copy returned to you.
5. All invoices should have your bank account details in the event that your customer wants to transfer money directly, rather than send a check.  And even better, have a link on your website where they can immediately pay their invoices online.

If you would like to review a sample 11 Point Cash Collection System with suggested letters and phone call scripts, you can view and download it here.

One step further you should consider is reviewing and updating your “CASH Management System”.  A Cash Management System would include Accounts Receivable, Collections, Payments, Forecasting, Liquidity Management, and Real-Time Controlling.   If you have any questions about either system, just give us a call at Bressler & Company – 559-924-1225, we can help.